EU’s Anti-Money Laundering Directives - Brexit & Beyond?

Wednesday 25th September 2019 saw Parliament return after the Supreme Court ruled that the decision to suspend sittings for five weeks was unlawful. MP’s have immediately returned to their discussions about Brexit, general elections, date extensions and potential changes to withdrawal agreements.

How will this affect UK companies and their preparation to meet the previously announced EU Anti-Money Laundering Directives, as their expected implementation dates get ever closer?

EU member states only have until 10th January 2020 to implement the EU 5th Anti-Money Laundering Directive (5AMLD), which is aimed at countering money laundering and terrorist financing. The legislation was adopted in July 2018, amending the previous 2015 legislation. However, these amendments are due to be reinforced by further legislation known as 6th AMLD, which is set to become the law late next year in December 2020.

For now, there is little indication from the Government about if and how Brexit is likely to impact the UK’s adoption of the legislation. It is worth noting that with the current draft withdrawal agreement obliging the UK to continue to apply EU laws during a transition period and a promise to at least work together after Brexit, UK regulated companies will most likely continue to focus on meeting the 5AMLD and soon to be 6AMLD regardless of any outcome.

What you need to know about 5th (& 6th) AMLD?

The 5AMLD proposals were made by the EU Commission following widespread tax evasion revelations in the Panama Papers and terrorist attacks in Nice and Brussels in the summer of 2016. Both incidents highlighted gaps in the EU’s Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) strategy, including the lack of virtual currency regulation and the need for better cooperation between member states.

The main areas addressed by the 5th Directive include beneficial ownership transparency, Financial Intelligence Units’ (FIUs) access to information, cryptocurrencies and pre-paid instruments, communication between AML supervisors and the European Central Bank, high-risk third countries, and politically exposed persons:

Beneficial Ownership transparency

Under the 5th Directive, beneficial ownership information about corporations will be maintained in a central register, accessible to the general public. However beneficial ownership information about trusts and similar legal entities will only be available to relevant authorities (like FIUs), those subject to AML rules (like banks and law firms), and anyone else who can “demonstrate a legitimate interest”.

Although member states have been asked to consider making this information public as well, especially where the trust or legal arrangement mirrors a corporation.

The deadline for setting up these central registers is 10th January 2020 and EU member states must ensure they are interconnected to other registers across the EU by 10th March 2021.

Importantly, the 5th Directive makes clear the need to strike a balance between preventing financial crime and respecting citizens’ right to data privacy, especially where disclosure could lead to kidnapping, extortion, or other violence.

Cryptocurrencies and Pre-Paid cards

The 5th Directive has been amended to include under AML/CFT legislation those who hold or store virtual currencies, provide exchange services of virtual and fiat currencies and custodian wallets.

The directive also instructs FIUs in member states to record the identities of virtual currency owners. However, they have been told to consider allowing owners to self-declare.

5AMLD also lowers the threshold for anonymous electronic money products, like prepaid cards, used in person or online. Currently, a prepaid card can be used if it is not re-loadable or monthly transactions do not exceed €250. But this has now been reduced to €150. Moreover, all customers who use prepaid cards to make remote payments of more than €50 will have to be identified by member states.

Anonymous prepaid cards issued outside the EU but used within the EU will only be allowed if the cards comply with the required national AML/CFT regulations.

AML assessments for high-risk third countries 

The 5th Directive noted that financial transactions and other business relationships between the EU and risky countries should be limited unless the member state has put in place measures to mitigate the risk. This can be done by requiring the third country to apply enhanced customer due diligence checks, if it is not already required by the country’s national law.

Communication between AML supervisors and the European Central Bank

EU Member states will have to set up central registers with the details of everyone who holds a bank or payment account in that country, and to make this accessible to all other member states. They will also have to ensure AML supervision of all relevant entities, preferably by public authorities via an independent national regulator.

The EU Commission has further set up a working group to discuss how cooperation and information sharing between the European Central Bank and national supervisors can be improved. Another key point in the directive is to ensure all financial institutions across the EU are able to share information with each other.

Financial Intelligence Units’ (FIUs) access to information 

Member states have been asked to set up a centralised register that allows FIUs across the EU to access the identities of bank or payment account holders, safe deposit box holders, their proxy holders and beneficial owners, all by 10 th September 2020.

The Directive highlighted the need to standardise the effectiveness of FIUs across the EU, deemed too inconsistent at present, and ensure they work in a more coordinated fashion. 

Politically Exposed Persons

EU Member states must issue lists of politically exposed persons, including what specific public function they serve.

The 6th AML Directive – Due December 2020

6AMLD provides a single definition of money laundering applicable across the EU to improve judicial and police cooperation in different member states.

It also sets out a list of offences and sanctions related to money laundering, including 22 categories of the crime. Sanctions include a maximum of four years imprisonment for those found guilty, as well as other penalties like exclusion from accessing public benefits and funding.

How NorthRow can help? 

NorthRow is a UK-based company focused on accelerating the capabilities of regulated organisations by digitally transforming their client onboarding and monitoring processes. Customers can create amazing onboarding user experiences whilst meeting the latest Anti-Money Laundering (AML) regulations.

Delivered through a Single-point API, NorthRow combines company director, shareholder, ultimate beneficial owner, Individual’s Verification (IDV) and Know Your Customer (KYC) checks, also offering Political Exposed Persons and Sanctions (PEPs) monitoring, accessing data from a range of international, open-source and law enforcement agencies.